How Is the U.S. Tax Treaty Deduction Going?

[ujong]

1 hour ago, NancyL said:

No, I haven't overlooked the IRS's technical interpretation, nor has my U.S. financial adviser, accountant and a lawyer here in Thailand.  As I wrote earlier, the real "danger" of utilizing this tax treaty is if the Thai gov't decides to collect tax from resident foreigners' pensions.  And, as this you've learned in this thread, no one reports any difficulty nor do they know of anyone who has had difficulty, aside from some random nastygrams from the IRS that have been resolved in the taxpayers' favor by the tax preparers at no charge as part of their fee.  

 

I think the best course of action is to move on and check back with everyone in a year or two to see if we're all still out of the IRS's clutches.  Meanwhile, Hubby and I and others I know are using the tax savings to drastically increase our charitable giving in Thailand.

If the tax maneuver is already getting nastygrams from from the IRS, it is unlikely that the IRS concurs with this interpretation, rather, they may have decided it isn’t a priority to pursue… yet.
 

Until they actually issue a ruling, you are skating on thin ice. it sure smells like a BIG reach based on a technicality, and the intent of the savings clause sure seems to be a claw back.

 

Rulings are typically issued based on “what is the intent” — and I can’t see how there would be any intent to let an RMD go tax free. I don’t mind being a little aggressive with my tax filing within reasonability, but this seems more far more bold than that. That is just my take.

[jeffandgop]

On 3/5/2022 at 6:35 PM, ujongjoe said:

If the tax maneuver is already getting nastygrams from from the IRS, it is unlikely that the IRS concurs with this interpretation, rather, they may have decided it isn’t a priority to pursue… yet.
 

Until they actually issue a ruling, you are skating on thin ice. it sure smells like a BIG reach based on a technicality, and the intent of the savings clause sure seems to be a claw back.

 

Rulings are typically issued based on “what is the intent” — and I can’t see how there would be any intent to let an RMD go tax free. I don’t mind being a little aggressive with my tax filing within reasonability, but this seems more far more bold than that. That is just my take.

Thats one specious argument. As I wrote earlier I received 2 letters from the IRS rejecting 2 amended returns. The letters stated that I had not cited the treaty/proper treaty. I chose to contact the IRS to do a check on my tax preparers submittals and that call resulted in a quick affirmation by the IRS my amended returns were proper and correct. Clearly the IRS DID concur the application of the treaty to my returns were correct and NOT something that they decided to “pursue later”

Edited March 7, 2022 by jeffandgop

[Dante99]

1 hour ago, jeffandgop said:

Clearly the IRS DID concur the application of the treaty to my returns were correct and NOT something that they decided to “pursue later”

Did the explicitly state in writing that they would not pursue later?  Or was it some words over the phone from someone who may or may not have final authority?  How could anyone know it they had final authority and how could the phone conversation be verified?

 

I always thought that IRS rules and other laws in the US were never really clarified until there were court decisions describing in detail how the laws/rules applied. 

[ujong]

1 hour ago, jeffandgop said:

Thats one specious argument. As I wrote earlier I received 2 letters from the IRS rejecting 2 amended returns. The letters stated that I had not cited the treaty/proper treaty. I chose to contact the IRS to do a check on my tax preparers submittals and that call resulted in a quick affirmation by the IRS my amended returns were proper and correct. Clearly the IRS DID concur the application of the treaty to my returns were correct and NOT something that they decided to “pursue later”

The IRS has been known to reverse course once it realizes it’s own folly.

 

This occurred in Singapore when their changed their mind about how employer contributions to the mandatory government social fund (CPF) should be taxed by the IRS. They issued a new ruling after issuing a past ruling. 
 

I’m not trying to pee in your punchbowl… I genuinely hope it works out for you — but I also think you need to be clear eyed about the risks, and that includes possible future action by the IRS that applies retroactively on your past filings.
 

Hopefully the statute of limitations runs out before they get the chance… I believe 6 years needs to pass if the income in question is > 25% of your total income… then you’re home free. 

[TravelerEastWest]

I haven't looked at tax laws in many years but I can tell you for sure that something said over the phone is not binding for all and probably not for you.

 

Even if a court rules in a certain way it is not normally binding for everyone. As an example if the 9th circuit rules against the IRS they will tend to follow the courts ruling only in the area that it has jurisdiction over not the whole US.

 

Looking at IRS regulations can be very helpful and looking at legislative history can shed light on what lawmakers intended.

 

Ujongjoe has given you good advice...

 

 

[jeffandgop]

3 hours ago, TravelerEastWest said:

I haven't looked at tax laws in many years but I can tell you for sure that something said over the phone is not binding for all and probably not for you.

 

Even if a court rules in a certain way it is not normally binding for everyone. As an example if the 9th circuit rules against the IRS they will tend to follow the courts ruling only in the area that it has jurisdiction over not the whole US.

 

Looking at IRS regulations can be very helpful and looking at legislative history can shed light on what lawmakers intended.

 

Ujongjoe has given you good advice...

 

 

I don’t know what your experience reading tax laws might be but I do know you didn’t read my posts either.  The IRS supervisor whom I spoke with had my “rejected “ amended returns reviewed again and those were approved and back taxes paid were refunded to me. Two other amended returns were also accepted and refunds were provided.  I did not seek anyone’s verbal advice or opinion; I asked the IRS to explain their initial rejections claiming no tax treaty had been cited in my amended returns. That resulted in the IRS re-reviewing and accepting all 4 amended returns and refunding those taxes previously paid. 

Edited March 7, 2022 by jeffandgop

[TravelerEastWest]

Jeffand Gpop,

 

I like adventure and wish you well!

 

I have no current tax experience - but did work for one of the large international CPA firms in a tax department a long time ago and I have a masters degree in taxation so I have the basic idea of how the tax world works but am not up to date.

 

I actually did read your last post, but speaking softly, politely and gently do not agree with your understanding of the law and your situation... As I tried to explain to you, you are not home free... and could easily have the situation be reversed.

 

But with a bit of luck you may be fine.

[flexomike]

On 2/19/2022 at 2:51 PM, gamb00ler said:

"Savings clause" - the actual text from the US-Thai tax treaty

 

2. Notwithstanding any provision of the Convention except paragraph 3 of this Article, a Contracting State may tax its residents (as determined under Article 4 (Residence)), and by reason of citizenship may tax its citizens, as if the Convention had not come into effect. 

 

The sentence beginning with the word "notwithstanding"  means:

Despite what ALL or ANY (except paragraph 3) other paragraphs of the treaty state either Thailand or USA reserves the right to tax its residents or citizens.

 

Paragraph 3 gives the types of payments/income that are exempted from taxation in the country that is not the source of the payments/income.

 

A notable absence from paragraph 3 is payments/income coming from a private pension or pre-tax retirement savings account (IRA's, SEP's, etc.).  The absence from Paragraph 3 means that either country can tax those incomes.  Thailand chooses to NOT tax them and US does choose to levy taxes on them.

 

so are people claiming that because Thailand can tax even though they don't this will work for them, I thought you could only use this if you did pay taxes in a foreign country

[gamb00ler]

2 hours ago, flexomike said:

so are people claiming that because Thailand can tax even though they don't this will work for them, I thought you could only use this if you did pay taxes in a foreign country

This thread is about an interpretation of the US-Thai tax treaty that posits that disbursements from pre-tax retirement accounts (IRA, SEP's, etc) are exempt from US tax.  It is not about using the foreign tax credit which is AFAIK not discussed in the tax treaty. 

[ujong]

There was one time the IRS “corrected” my return and sent me a tax bill. I disputed this through written correspondence, siting various sections of the tax code. I was able to get away with it. But, had they dug deeper, they might have found a reason to reject it… but they didn’t. I consider myself lucky, not vindicated. 

 

Similarly in this case, I have to believe the IRS hasn’t looked into it deeply or doesn’t even know that Thailand is not imposing any tax. If they ever dig into this, what do you think is gonna happen? I have a pretty good idea. 

Edited March 7, 2022 by ujongjoe

[JimGant]

On 3/7/2022 at 5:47 PM, flexomike said:

so are people claiming that because Thailand can tax even though they don't this will work for them, I thought you could only use this if you did pay taxes in a foreign country

This is the beauty of the saving clause, which requires you to file a US tax return on your worldwide income, whether or not you pay taxes to the treaty country. This was by design: Should a treaty country choose not to use the treaty language to tax its US tax residents on IRAs, well, then, you pay full fare to Uncle Sam. But, if they do tax your IRA, you get a full tax credit for this Thai tax -- all under the treaty's language about avoiding double taxation by using tax credits. So, sorry fellow Yanks, Thailand is not a tax haven, due to the saving clause -- unless you hire certain tax firms in Bangkok.

 

By some of the questons this thead is generating, I can tell that some are not familiar with a 2017 thread that had a much more thorough discussion of this subject. So, here it is:

https://aseannow.com/topic/1008555-tax-specialist-in-chiang-mai/page/2/

 

Key on this thread was a link to an IRS evaluation of the saving clause as it applies to IRAs and the US-Switzerland tax agreement. Substitute "Thailand" for "Switzerland" in this OECD cookie cutter language treaty -- to include no saving clause exceptions for IRAs -- and you have what would occur if the same senior level of evaluation at the IRS occurred with what's going on now in Thailand. Meanwhile, all IRS refund checks are cut with only a low level cursory look (mainly by computer algorithm) at the return -- you think tens of thousands of refund checks are held up for a senior GS of SES to look at? Nope. Those of interest will be flagged for possible further evaluation down the road. But a five figure IRA report, using a treaty exception, probably wouldn't be flagged, as long as all the t's were crossed on the Form 8833. Now, a six figure IRA might trigger a response -- but the firms in Bangkok probably wouldn't process such a high value return for you ...... (someone prove me wrong). So, just because you got a refund check doesn't mean the IRS has vetted your position.

 

Here's the Swiss evaluation:

https://hodgen.com/ira-distribution-to-u-s-citizen-living-in-switzerland-which-country-taxes-it/

 

[TravelerEastWest]

"...So, just because you got a refund check doesn't mean the IRS has vetted your position..."

 

Exactly!

 

There are some smart senior people at the IRS but normally you won't come into contact with them.

 

Also small private tax office staff are typically are not all that well trained. No insult intended to anyone...

Edited March 12, 2022 by TravelerEastWest